Synergy Pharmaceuticals – Court Confirms Modified Fourth Amended Plan as Creditors Set for 35% Recovery

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April 25, 2019 – The Court hearing the Synergy Pharmaceuticals case issued an order confirming [Docket No. 713] the Debtors' modified Fourth Amended Plan [Docket No. 712]. On December 12, 2018, Synergy Pharmaceuticals (“Synergy” or the “Company”) and one affiliated Debtor filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 18-14011. In its Petition, the Company, a biopharmaceutical focused on the development and commercialization of novel gastrointestinal (“GI”) therapies, noted between 100 and 200 creditors; estimated assets of $83,039,825; and estimated liabilities of $179,282,378. 

Plan Overview

As described further below, the two impaired (and entitled to vote) classes will split $26.1mn of "Excess Sales Proceeds," broadly the $185.6mn proceeds from the Debtors' sale of assets to Bausch Health Companies Inc. LESS the repayment of $159.1mn of debtor-in-possession ("DIP") claims. 

More precisely, "Excess Sales Proceeds" is defined as: "all of the Cash held by the Debtors’ Estates on each Distribution Date, including the Cash Consideration (as defined in the Asset Purchase Agreement) under the Asset Purchase Agreement, less the amounts used to pay the DIP Claims and Other Secured Claims, if any, in full, in cash, and the amounts used to fund the Professional Claims Reserve, the Administrative and Priority Claims Reserve, the Disputed Claims Reserve, and the Wind-Down Reserve; provided that Excess Sale Proceeds shall exclude any and all (a)proceeds of Avoidance Actions and (b) proceeds of Causes of Action of the Debtors, in each case, that are vested in the Litigation Trust on the Effective Date."

For a further understanding of funds available for distribution, see the Liquidation Analysis on page 130 of the Debtors' Disclosure Statement [Docket No. 476].

The Disclosure Statement notes [Docket No. 518], “The Debtors’ estimate that there will be approximately $26.1 million of Excess Sale Proceeds, which under the Plan will be split on a 50-50 basis between the Holders of Allowed Term Loan Claims and Holders of Allowed General Unsecured Claims. Accordingly, each Holder of an Allowed Term Loan Claim will receive its Pro Rata Share of a total of approximately $13.05 million to be distributed to Holders of Allowed Term Loan Claims and each Holder of an Allowed General Unsecured Claim will receive its Pro Rata Share of a total of approximately $13.05 million to be distributed to Holders of Allowed General Unsecured Claims. Any recoveries from the Causes of Action and Avoidance Actions vested in the Litigation Trust will be distributed pro rata to Holders of Allowed General Unsecured Claims until all Allowed General Unsecured Claims are paid in full. After all Allowed General Unsecured Claims are paid in full, any recoveries from the Litigation Trust will be shared ratably between Holders of Allowed Section 510(b) Claims until paid in full and Holders of Allowed Interests in Synergy Pharmaceuticals.”

The following summary of classes, claims, voting rights and expected recoveries is unchanged (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Other Priority Claims”) was unimpaired, deemed to accept, and not entitled to vote on the Plan. Estimated Recovery is 100%.
  • Class 2 (“Other Secured Claims”) was unimpaired, deemed to accept, and not entitled to vote on the Plan. Estimated Recovery is 100%.
  • Class 3 (“Term Loan Claims”) was impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $37.1mn and the estimated recovery is 35%. Each holder of an Allowed Term Loan Claim shall receive: (a) first, from the Administrative and Priority Claims Reserve, unpaid expenses that become due and payable from time to time, which shall not exceed the estimated amount of such expenses included in the Administrative and Priority Claims Reserve; (b) second, its Pro Rata Share of the amount equal to 50% of Excess Sale Proceeds until the earlier of (i) payment in full of all Allowed General Unsecured Claims (including allowed postpetition interest, if any) or (ii) payment of $36mn of the Allowed Term Loan Claims (plus Term Loan Interest, if any; (c) third, if (i) occurs before (ii) as set forth in (a) above, its Pro Rata Share of 100% of the Excess Sale Proceeds until payment of $36mn of the Allowed Term Loan Claims (plus Term Loan Interest, if any); and (d) fourth, after (i) payment in full of all Allowed General Unsecured Claims (including allowed post-petition interest, if any) and (ii) payment of $36mn of the Allowed Term Loan Claims (plus Term Loan Interest, if any), its Pro Rata Share of the amount equal to 50% of Excess Sale Proceeds until all Allowed Term Loan Claims (plus Term Loan Interest, if any) are paid in full.
  • Class 4 (“General Unsecured Claims”) was impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $38.6mn and the estimated recovery is 34%. Each Holder of an Allowed General Unsecured Claim shall receive beneficial interests in the Litigation Trust entitling each Holder of an Allowed General Unsecured Claim to receive its Pro Rata Share of any recovery from Causes of Action or Avoidance Actions that vest in the Litigation Trust on the Effective Date in accordance with Section 5.03 of the Plan and: (a) first, its Pro Rata Share of the amount equal to 50% of Excess Sale Proceeds until the earlier of (i) payment in full of all Allowed General Unsecured Claims (including allowed post-petition interest, if any) or (ii) payment of $36mn of the Allowed Term Loan Claims(plus Term Loan Interest, if any); (b) second, if (ii) occurs before (i) as set forth in (a) above, its Pro Rata Share of 100% of the Excess Sale Proceeds until all Allowed General Unsecured Claims (including allowed post-petition interest, if any) are paid in full; and (c) third, its Pro Rata Share of the recoveries from the Litigation Trust, if any, until such Allowed General Unsecured Claim (including allowed post-petition interest, if any) is paid in full.
  • Class 5 (“Section 510(b) Claims”) was impaired, deemed to reject and not entitled to vote on the Plan. Estimated Recovery is 0%.
  • Class 6 (“Intercompany Claims”) was impaired, deemed to reject and not entitled to vote on the Plan. Estimated Recovery is 0%.
  • Class 7 (“Intercompany Interests”) was impaired, deemed to reject and not entitled to vote on the Plan. Estimated Recovery is 0%.
  • Class 8 (“Interests”) was impaired, deemed to reject and not entitled to vote on the Plan.

Plan Voting

On April 15, 2019, the Debtors' claims agent announced the Debtors' Plan voting results [Docket No. 671], which were as follows:

  • Class 3 (“Term Loan Claims”) – 5 claims holders, representing $37,105,161.21 in amount and 100% in number, accepted the Plan.
  • Class 4A (“General Unsecured Claims against Synergy Advanced Pharmaceuticals, Inc.”) – 15 claims holders, representing $18,218,007 in amount and 100% in number, accepted the Plan.
  • Class 4B (“General Unsecured Claims against Synergy Pharmaceuticals Inc.”) – 54 claims holders, representing $19,807,130.70 in amount and 100% in number, accepted the Plan.

Events leading up to the Chapter 11 Filing:

In documents filed with the Court, the Debtors stated, “The Company’s only commercial product, plecanatide, is available and being marketed by the Company in the United States, under the trademark name TRULANCE, for the treatment of adults with chronic idiopathic constipation ('CIC') and irritable bowel syndrome with constipation ('IBS-C'). CIC and IBS-C are chronic, functional GI disorders that afflict millions of people worldwide…. The Company has faced several headwinds in its efforts to increase sales volume, and, as a result, sales growth for TRULANCE has been slower than anticipated. Market access is highly competitive. The companies that sell products that compete with TRULANCE have more capital, significantly larger operations and infrastructure, and thus, have been able to provide larger discounts for managed care organizations and negotiate better terms with payors. In addition, the overall market growth for branded CIC and IBS-C products has been slower than anticipated….Furthermore, the Company has been severely limited in its ability to obtain additional capital via public markets due to (a) the Company’s shareholders voting not to approve any increase in authorized shares and (b) restrictive debt covenants in the Prepetition Term Loan Agreement, including without limitation restrictions imposed on additional capital raised through a debt financing. Due to its inability to access additional capital on reasonable terms, the Company has been unable to effectively address the impediments it has faced in the past year."

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